Selling a business - how to guarantee payment?

O

Oper

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Over the last 4 years I've built up an ecommerce business and have been made an enticing offer for it by a competitor.

The sale will be of assets only and will include domain names and customer information. They propose to pay around €400k for the business over two years with equal payments each month. This is fine by me so long as I could guarantee payment.

My question is this: what should I do to help guarantee payment?
Placing the domains of the business in escrow is one option, but I do not think that that is enough. They could conceivable then give up the domains once they have gained access to the business' customer information after initial monthly payment.

The buyer is based in the US (I'm in Ireland), which would make litigation a little difficult if things went wrong.

And advice will be much appreciated.
 
It should be up to them to get finance and pay you the 400k up front. Otherwise it would be too risky I reckon and too costly to sue them if things don't work out. Well done on (hopefullly) selling your business.

In time when the deal goes through could you tell us what the ecommerce business does?
 
aristotle said:
It should be up to them to get finance and pay you the 400k up front. Otherwise it would be too risky I reckon and too costly to sue them if things don't work out. Well done on (hopefullly) selling your business.
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Thanks. Yes, that would be the safest option. But if there are any things I can do to protect myself while using their proposed payment plan I would still like to hear them.

aristotle said:
In time when the deal goes through could you tell us what the ecommerce business does?
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Sure :)
 
I'm trying to think of ways of guaranteeing payment in the sale of other things (cars, houses, etc) and I don't know of any.

You are selling and giving away your assets in agreement for payment over 24 months. Thats a long time in business and you are been asked to carry the risk if the buyer runs into trouble and you are being given no collateral as back up.

Could you sell the 400k debt to some debt purchase agency? I'd assume you would only be offered a much smaller number than 400k.

You could counter offer a price of 350k upfront perhaps? Or a 200k up front and the rest over 12 months or something. I think you need to ensure you get the cash into your bank asap.
 
It's not unusual for an acquirer to pay for a business over an agreed time period. It would be fairly unusual, however, to have equal monthly payments. If there are no contingencies (such as an earn-out period or revenue targets), it would be more common to get over 50% up-front.

I'd check the acquirer's solvency & cash balances. For e.g. if it was Microsoft, I wouldn't lose too much sleep over whether you'll get your cash.

If there are any concerns over solvency, then have them enter into an escrow agreement. Or have a third party guarantee their payments (at their cost). An escrow agreement would be more common, but I'd imagine that the desire to spread the payments equally over a 24-month period relates to their cashflow position.

I don't think you should sell the debt for less than the €400k- if that's the acquirer's offer, then really they should be good for it, and be able to prove they're good for it.

Another option is to make the transaction reversible if they don't make payments, although this may make it unattractive to them.

You should seek legal advice from a commercial solicitor before you sign a term sheet - that's the place and this is the time where professional advice is most valuable. You should probably take some tax advice to figure out how to get the €400k out of the company (if it's an asset sale, the money will go into the company). If you own the assets in your own name, I know that you'd be taxed for CGT on the whole amount up-front, even though you don't actually receive the cash. There are pitfalls that are fairly easy to avoid if you have the right preparation and really the only place to get that is from a professional advisor.

Best of luck with it.

Sprite
 
I am with Aristotle on this. If they are a good credit, they should be able to borrow to buy the business. If they are not a good credit, you don't want to give them credit.

If they choose not to pay you, there is very little you can do about it. Litigation would be too expensive.

If there is no contingency, then they should pay you upfront.
 
What about if they don't pay you at any stage, you get shares in their company to the value remaining?
 
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